Taxation of Forgein Nationals in the US on G-IV Visas

The United States imposes different types of taxes, including income and estate and gift taxes. An individual’s tax liability to the US government depends on whether the individual is a US citizen or resident or a nonresident alien. US citizens and residents are taxed on their worldwide income for US income tax purposes and on their worldwide assets for US estate and gift tax purposes. In contrast, nonresident aliens are subject to US income tax only on their US source income and subject to US estate tax only on their assets located in the US. Nonresident aliens are also subject to US gift tax only on transfers of tangible property located within the US.

The G-IV visa is a non-immigrant visa granted to officials or employees of international organizations while stationed on official business in the US, as well as to members of their families. US authorities grant G-IV visas in order to permit staff members who are not citizens or permanent residents of the US to work at international organizations.

There are three different residency tests in determining the income and estate and gift tax consequences of an individual in the US on a G-IV visa. Such individuals are exempt from the “substantial presence test”, which test provides that non-US citizens are US residents for income tax purposes if they are in the US for 183 days or more in a given tax year. There is a three year rolling period for computing the days in any given year that count against the 183 day threshold which has to be taken into account in this regard.

US taxation of the capital gains of a G-IV visa holder involves a different residency test, namely, such individuals are subject to a 30 percent tax on US source capital gains if they are present in the US for 183 days or more in any taxable year. Absent this special rule, nonresident aliens, including G-IV visa holders, are not subject to US tax on capital gains, whether US source or not, except for capital gains on the sale of real property located in the US. For purposes of imposition of US estate and gift taxes on a G-IV visa holder, the determining factor is whether the individual is domiciled in the US.

For US income tax purposes, wages, fees, or salary of employees of a foreign government or of an international organization received as compensation for official services to such government or international organization are not taxable in the US. However, income received by such employees from sources other than their compensation from employment is subject to US income tax. Since employees of international organizations in the US on G-IV visas will be exempt from the residency test other than capital gains, they will only be subject to tax on their income from US sources. Under the special residency test for capital gains, an individual in the US for 183 days or more in a tax year will be subject to tax on US source capital gains, which contrasts with the exemption of capital gains tax for nonresident aliens. The above residency rules would similarly apply to foreign diplomats, consular officers, foreign students, or scholars visiting the US in A, F, J, M, or Q nonimmigrant status.

An individual in the US on a G-IV visa is not exempt from estate and gift taxation. Whether an individual in the US on a G-IV visa is considered a resident for estate and gift tax purposes will depend on whether they are domiciled within the US. While a US resident is subject to estate and gift taxes on their worldwide assets, they receive the unified credit against the imposition of estate and gift taxes. The unified credit against estate and gift taxation is indexed for inflation. In 2013, the unified credit is $2,045,800, which is the equivalent of an exemption of $5,250,000 from estate and gift taxation. By contrast, a nonresident alien receives a credit of $13,000, which is the equivalent of an exemption of $60,000, against the imposition of estate tax on their assets located in the US and no credit against the imposition of the US gift tax.

The benefit to being considered a nonresident alien for purposes of US estate taxes is that a nonresident alien is only subject to US estate tax on his or her US based assets; and for the gift tax, a nonresident alien is only subject to US gift tax on tangible personal property located in the US. An example of an asset of nonresident aliens that would be subject to US estate tax but not US gift tax is shares of stock issued by US corporations. For individuals in the US on a G-IV visa, the determining factor of establishing US residence for estate and gift tax purposes will be domicile and not G-IV status. However, G-IV status will be a factor in determining domicile.